The storm clouds shadowing solar

The news that Campbell Newman would seek to withdrawal funding for Solar Dawn reinforced my view that we need a better way of structuring government support for solar in this country.

This is not because I have any particular problem with the Solar Dawn project, nor the other winning bid – Pacific Hydro's Moree solar photovoltaic (PV) project. What bothers me is that Solar Flagships has nothing to show for more than $1.5 billion in allocated funding four years after the program was announced.

In addition, there are potentially large storm clouds on the horizon for the solar PV industry more generally. The Australian solar PV industry has managed to grow incredibly in the past four years, largely by government policy accident rather than design. Plunging international prices for solar PV modules and the high Australian dollar meant that solar PV needed far less government support than originally expected to make it attractive to households. Government assistance was slow to adjust and this led to sales of solar PV far greater than originally anticipated. But these government programs are now being dramatically wound back.

The grand vision that solar PV sales would become self-sustaining once they reached parity with the retail price of electricity is now threatening to become a mirage. Utility regulators in several states are reducing the price paid for generation exported to the grid from solar PV systems to half the retail price of electricity. At the same time households are becoming more energy efficient, so the amount they export to the grid will grow.

So should the industry seek to lynch the electricity retailers?

I'm afraid that this will not get the solar industry very far either. There are four fundamental problems with government support programs that need to be addressed to enable sustainable growth and improvement.

1) Programs should not be structured around supporting a few one-off projects.

Programs like Solar Flagships will not support the kind of investments needed to realise improvement and cost reductions in new technologies and industries. To illustrate, how many school leavers do you think would enrol in medicine if the only job on offer was likely to last just three years, after which they'd then need to wait another ten years before the next job? Yet this is precisely the way we've approached renewable energy (and use of carbon capture and storage for fossil fuels).  Without a long-term market people will take a stop-gap approach through improvising rather than making the kind of specialised investments required to get really good at something. I wouldn't want to have my heart operated on by the local vet, so why do we think this could be a good idea for our multi-billion dollar energy system?

Also when did you ever become good at something through having one go at it? Almost always your first attempt at something is a bit of a failure. It is only through persistent practice that you become genuinely good.  

It also helps if there are plenty of people trying the same thing, so you can learn from each other. They can also push you to get better through competition.

Australian government policy thinking for supporting renewable energy and carbon capture and storage is built on a fiction that electricity technologies emerge competitive against incumbents after a single demonstration project. It's never been true in the past and a carbon price of $15 per tonne of CO2,or even $40, isn't going to change this.

2) Programs must avoid inducing boom-bust situations.  

Even programs designed to support large numbers of installations over many years can still encounter all the same problems as a program structured around one-off projects. This happens when programs induce a sudden and unexpected boom of installations and are incapable of making automatic adjustments to moderate growth. Usually in such boom situations involving major cost blowouts, politicians will eventually intervene to address the funding problem. But this tends to involve a sudden, arbitrary over-reaction that brings the market to an almost complete halt.

Sudden movements one way and then the other, also cause businesses to take a short-term, opportunistic approach, rather than invest for long-term improvement.

3) The size of a power project is not a measure of its value. 

There is no need for a program specifically dedicated to supporting very big solar projects (as Solar Flagships required). While this has not been such an issue for solar thermal (where projects are best suited to large size), it is ridiculous for solar PV. There is nothing to be gained by taking a 500 watt solar panel and stringing it together with several hundred other panels that are exactly the same that couldn't be learnt through something smaller. Solar PV's beauty lies in its small scale modularity that enables you to size it to match customer loads.  Smaller is better – less time, less risk. If coal, nuclear, gas, wind and biomass power stations came in off-the-shelf kilowatt scale at the same price and operating cost as a 1000MW plant, that's the scale we'd build them at. The only reason you go bigger is because there is a saving in cost that offsets the extra time and risk involved.   

Also the price of electricity when you build a 50MW project is the base wholesale price, whereas if you build a much smaller project on a commercial business premise or residential home, you can help offset the delivered price of electricity which will be around twice to three times the level at the wholesale market. Why wouldn't you install solar at the point in the electricity system where it is most valuable?

At the same time, there is nothing magical about solar PV systems of 1.5 kilowatts or smaller which justifies the extra subsidy they receive from the government (the bonus renewable energy certificates). The electricity from the first 1.5 kilowatts of panels is no different to that from the next 20 kilowatts.

4) Wherever possible programs should avoid committing to a supplier in advance of the end product (electricity) being delivered.

You don't buy your apples by paying a farmer to plant apple trees, you buy your apples as and when you need them from the local market, paying in accordance with the quantity of apples you want. Yet the Solar Flagships program commits support to individual projects well before they will ever deliver a single unit of electricity. Also the support payment is not directly linked to the quantity of electricity the project will produce.

The Renewable Energy Target provides subsidies for small-scale solar projects upfront on installation based on a forecast of their electricity generation over the next fifteen years rather than what they actually generate. This means that incentives are not structured properly to encourage the solar power project proponents/installers to:

-- Get the project up and running as soon as possible in the case of Solar Flagships;

-- Avoid cheap and nasty methods and technologies that might save money in the short-term but come at the expense of the amount of electricity produced and overall long-term value.